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    Nerdy Inc (NRDY)

    Q2 2024 Summary

    Published Jan 22, 2025, 2:35 AM UTC
    Initial Price$2.97April 1, 2024
    Final Price$1.61July 1, 2024
    Price Change$-1.36
    % Change-45.79%

    What went well

    • Shift back to premium memberships expected to increase ARPM above $300 by end of Q3, with new customers approaching $400 in ARPM, leading to higher revenue per customer, higher retention, and accelerated revenue growth during the back-to-school period.
    • Institutional freemium strategy has added 1.1 million students during the quarter, totaling 3.3 million students at nearly 600 school districts, building trust and credibility, and facilitating conversion to paid customers, positioning Nerdy to grow its institutional revenue.
    • Active engagement with school districts to secure funding from multiple sources, including $6 to $8 billion remaining SR3 funds, Title 1 funds (~$20 billion per year), and state grant programs, with Nerdy's capability to deliver high-dosage tutoring at scale, making it well-positioned to benefit from increased funding for tutoring programs.

    What went wrong

    • The company is experiencing higher-than-expected cancellations and lower Average Revenue per Member (ARPM) due to low-cost offerings not driving sufficient engagement, leading to fewer active members than anticipated entering the back-to-school period.
    • The company has lowered its revenue guidance, with about 40% of the decline attributed to the consumer side and 60% to the institutional side in the back half of the year, indicating challenges in both segments.
    • The impending expiration of ESSER III funds, which need to be obligated by September 30, may pose a risk to future institutional revenue, and there is uncertainty in leveraging alternative funding sources to maintain growth in that segment.

    Q&A Summary

    1. Return to Premium Memberships
      Q: When will shift back to premium increase ARPM?
      A: With the focus on premium memberships during back-to-school, we expect ARPM to be above $300 by the end of Q3, continuing into Q4 and beyond. Early trends show ARPM approaching $400 on new customers acquired, driven by higher-frequency customers and improved retention.

    2. Consumer Revenue Rebound
      Q: What's driving the revenue rebound this back-to-school season?
      A: The primary driver is the consumer business returning during back-to-school, with a focus on premium memberships leading to higher ARPM. Top-of-funnel demand nearly triples in September and October compared to summer months, allowing us to accelerate revenue meaningfully.

    3. Addressing Higher Cancellations
      Q: What's causing higher cancellations this summer?
      A: The lower-cost offerings didn't foster a weekly habit, and the product wasn't ready for that pricing model. By shifting focus back to premium memberships and enhancing the product to encourage weekly usage, we aim to improve retention.

    4. Guidance and Active Members
      Q: What are the assumptions for learning members and ARPM in guidance?
      A: We expect to end Q3 with about 40,000 active members and end the year with about 43,000, consistent with historical back-to-school peaks. We anticipate ARPM to be above $300 at the end of each quarter due to the shift back to premium memberships.

    5. Institutional Business Conversion
      Q: How are you converting freemium users to paid customers?
      A: There has been a very high uptake rate, with nearly every school district willing to meet and consider rolling out our products. We're optimizing conversations to include both free tools and commercial services concurrently, leading to more strategic partnerships.

    6. Shifting Funding Sources
      Q: How are you adapting to the expiration of SO3 funding?
      A: While SO3 funds must be obligated by September 30, we're actively assisting districts in utilizing these funds. Additionally, we're focusing on other funding sources like Title I, which provides roughly $20 billion annually, state grant programs, and specific legislation funding tutoring initiatives.

    7. Increasing User Engagement
      Q: How are you driving increased user engagement?
      A: We're enhancing the onboarding experience to be intuitive and frictionless, helping users quickly find tutors and engage with the platform. Improvements include better invoicing, scheduling, matching processes, and UX upgrades. Promoting multimodal learning leads to roughly twice the retention and lifetime value compared to tutoring-only users.

    8. School District Targeting
      Q: Which school districts are you targeting?
      A: Our offerings resonate with all districts—we're partnering with urban, suburban, and rural schools alike. Our goal is to become the de facto tutoring platform in the U.S., building trust with all districts and students.

    9. Benefiting from Regulatory Funding
      Q: How does Nerdy benefit from new tutoring funding programs?
      A: Given tutoring's proven effectiveness, we build relationships through our sales team, government relations, and marketing to be a trusted provider. Our product quality positions us to participate in federal and state funding opportunities for high-dosage tutoring.

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